Deezer steps up endorsement of user-centric approach to digital royalties

Deezer has today formally backed the user-centric approach to
distributing digital royalties. It has launched a consumer-facing
website that explains what user-centric is all about and why it thinks
it would be a fairer way of sharing out streaming income.

The global streaming firm has been quietly lobbying for a shift
to user-centric for some time, but the new website sees it go much more
public on the issue. At the same time, it is seeking to persuade labels
and distributors in its home market of France to switch to user-centric
next year.

The streaming business model is, at its heart, a
revenue-share-based-on-consumption-share model. And at the moment
consumption share is calculated on a service-wide basis.

Each month – for each product type in each market – a streaming
service calculates what percentage of total listening was of recordings
controlled by any one label or distributor. It then allocates that
percentage of its total income to said label or distributor, sharing
that allocation according to its revenue share agreement.

So if one label’s catalogue accounts for 20% of overall
listening, 20% of total revenues is allocated to that label. If the
label has a 55/45 revenue share agreement to its advantage, the
streaming service then pays 55% of that allocation to the label. Which
then needs to split the money between all the tracks streamed and pay
whatever royalties are due to each artist.

With the user-centric approach, the same process is employed,
but for each individual subscriber. So instead of every users’ payments
and plays going into one pot before the sums are done, each subscriber’s
monthly payment would be split between the artists whose music they
actually listened to.

The two approaches result in a different distribution of the
monies mainly because, on any one platform, you have high-level users
and low-level users, ie those who are streaming 24/7 versus those who
stream for a few hours per week. To an extent, when it comes to royalty
payments, the latter are subsidising the former. Which is to say, a
chunk of the money paid by the low-level user is going to artists
streamed by the high-level user.

Deezer’s new website championing user-centric royalty
distribution attempts to illustrate the extent to which low-level users
are subsidising high-level users, by allowing its premium subscribers to
see how much of their monthly subscription fee is actually going to
artists they listen to. The thinking is that most music fans would
prefer – and possibly already assume – that money they put into the
system goes to artists they actually listen to.

There has been plenty of debate in the music community in
recent years about the pros and cons of shifting to a user-centric
approach, especially since it became known that Deezer was both
investigating and then championing such a shift.

Various people have been crunching the figures to ascertain
what impact the shift would actually have on how all the money is shared
out. Although different studies have reached slightly different
conclusions, it does seem likely that user-centric royalty distribution
would see top-level artists earn slightly less and lower level artists
earn slightly more. User-centric would also likely benefit niche genres
over mainstream genres, domestic repertoire over Anglo-American
repertoire, and artists with older fanbases.

It wouldn’t make any difference to the streaming services,
although it would mean that digital deals could no longer include
per-play minimum guarantees, as they sometimes did, especially in the
early days of streaming. And it probably wouldn’t make much difference
to the bigger labels either, which – across their large catalogues –
would likely see both the benefits and the downsides in a such a way
that they would cancel each other out.

Many artists, songwriters and managers have argued that
user-centric seems like a much fairer way to distribute streaming
income, albeit usually with the proviso that they’d like to see more
detailed figures as to what impact it would actually have.

Labels are more divided on the issue. And within the bigger
labels there are differences of opinion across the group, because while
the company at large might not really be affected one way or the other,
individual units and departments could be winners or losers.

On its new website, Deezer identifies four main advantages of
user-centric. Firstly, that it reduces “unfair revenue gaps that come
from applying old ways of thinking to digital music”. Second, it would
better “support local creators and niche genres”. Third it would promote
“a diverse and vibrant music landscape”. And finally, it could help in
fighting fraud.

The latter benefit of user-centric royalty distribution has
become more newsworthy of late after revelations about how certain
people have been scamming the system, not just to artificially boost the
stats of any one artist, but to unfairly grab a slice of streaming
monies.

Scammers create and upload their own catalogues of short tracks
and then set up a stack of premium subscriptions that listen to that
music 24/7. Under the current system they get back significantly more
than the subscription monies they put in. But under user-centric, they
could only ever get back their own subs, minus VAT and the streaming
service’s cut.

Of course, there’ll be other scams, but that particular method
of gaming of the system for profit would be ended by the user-centric
approach.

Critics of user-centric usually lead with the argument “be
careful what you wish for”, positing that there are more cons than
people probably realise. Obviously, for starters, there is the fact that
everyone – streaming services, distributors, labels, collecting
societies etc – have set themselves up to calculate, administer and
audit monies on a service-centric model.

What would the costs and implications be of shifting over to
something new? Deezer argues that any challenges linked to switch-over
will only increase as the streaming market continues to boom. Therefore,
if the music community agrees it’s a fair way of doing business, better
to make the switch now rather than later.

Plus, with industry-wide streaming monies still rising
significantly each month at the moment, superstar artists who will take
the hit under user-centric will still likely see their overall income go
up, just not quite at the level it would under the current system.

There is also the downsize that, arguably, user-centric is
slightly more complex than service-centric. And, as we know, digital
licensing is already pretty damn complicated.

At the moment, although the idea of there being a per-play rate
on any one streaming service is actually very misleading, you can make
approximations in each market. So that, in the UK, a million streams is
probably going to generate about £4000-£6000 across recording and song
rights. With user-centric, what any one artist earns from a million
streams will depend on the kind of fanbase they have – ie are they
low-level or high-level streamers?

Realistically, Deezer can only switch to user-centric if the
majors buy-in, and – as referenced above – it seems that opinion is
currently divided within those companies. But there are an assortment of
indie labels and distributors already backing the streaming firm’s
proposal to shift to user-centric for recording royalties in France next
year.

France, of course, is the one market where Deezer has enough
market dominance to put pressure on its label partners. And the
consumer-facing communications campaign launched today might increase
that pressure because, if a sufficient number of fans understand and
support user-centric, it becomes harder for the superstars and big
corporates to oppose it.

If Deezer does manage to persuade the record companies in its
home country to switch to user-centric next year, the industry at large
will watch that pilot with interest.

Obviously, Deezer’s ambition is to roll it out into other
countries, and to also apply it to the way music publishers and
songwriters are paid. If it did then have the positive impact that has
been suggested on grassroots artists and niche genres, then pressure
might mount on Deezer’s rivals to look into shifting over to a
user-centric approach too. Though there’s still plenty of big “ifs”
there.

Announcing the launch of the company’s new website on all
things user-centric this morning, Deezer’s Chief Content & Strategy
Officer, Alexander Holland, said: “Streaming has been the main
innovation driver in the music industry for many years now. Digital
technologies and data make it easier than ever to make sure that all
artists and content creations have a fair playing field”.

“A user-centric approach is the next logical step”, he added,
“and would mean that fans directly support the acts they love. Getting
rid of bot fraud is a welcome added bonus and would make sure that your
subscription money goes where it’s supposed to – the acts you love”.